The blackouts caused Pamela López to throw away the chicken, which she would stuff with over 200 empanadas. With no way to keep the refrigerator cold, the food she would sell spoiled in mid-June during the opening of her Café-Tín business in the San Juan neighborhood of Santurce. “Not only is the ingredient lost, but also the hours of work,” she told the Centro de Periodismo Investigativo (CPI).

Experiences like Lopez’s are repeated weekly for business owners and individuals throughout Puerto Rico. This, along with other problems derived from the instability of the electricity system, has intensified the demand of various sectors to cancel the contract with LUMA, the foreign private company managing the electric grid.

The CPI asked the Puerto Rico Energy Bureau (NEPR, in Spanish) about the minimum metrics LUMA must achieve to avoid its contract being canceled. The regulatory entity responded that these contractual matters must be settled between LUMA and the Public-Private Partnerships Authority (AAPP, in Spanish). When the CPI asked AAPP Executive Director Fermín Fontanés what the minimum metrics are to avoid the cancellation of the contract, he tossed the hot potato back to the regulatory body. “The metrics that LUMA Energy must comply with are established by the Puerto Rico Energy Bureau,” he said, adding that they will come into effect when the Puerto Rico Electric Power Authority (PREPA) restructures its debt, and the 15-year contract begins.

Depending on the conclusion of PREPA’s debt restructuring to begin to oversee LUMA is betting on uncertainty. PREPA’s bankruptcy has been the most extensive litigation of all the government debt restructurings, which started seven years ago. Federal Judge Laura Taylor Swain, presiding over the bankruptcy cases, recently called for a negotiation between the Fiscal Control Board and the unsecured bondholders, which must occur on or before September 8.

Even without experiencing a major storm, LUMA customers have faced an average of 1,414 minutes of service interruptions from April 2023 to March 2024, the Texas-Canadian consortium stated in its most recent report to the NEPR. Then came the sequence of June blackouts.

Those numbers have not remained below the 1,243 minutes the Energy Bureau established as the minimum performance it expects from LUMA. According to the NEPR, that was PREPA’s performance in 2020, the public corporation that ran the energy system before the private consortium came in three years ago.

In section 14.1 subsection K, the contract indicates that LUMA would be in default if it does not meet the minimum performance requirements of three key metrics for three consecutive years. Service outage duration, which has not improved under LUMA as it enters its third year of managing the system, is one of those key metrics.

Pamela couldn’t turn on the oven to bake the Argentine-style empanadas. She made the few that were left in the freezer at the La Goyco community center, on Loíza Street, and she gave them away to the neighbors. “We’re doing business out of our own pockets,” López added, emphasizing how the energy crisis is making her lose money. Economic activity, the quality of life of Puerto Ricans, and the health of patients connected to electrical devices are affected with each blackout.

In Placita de Santurce, local food restaurant La Alcapurria Quemá lost more than $7,000 in ingredients during power outages that left the business in the dark for almost five days in June. In the kitchen, they had to get rid of the steak they had just bought and the meat already marinated. Pork chops, shrimp, and octopus spoiled. That is compounded by lost sales, additional disinfection work, and employees who couldn’t work.

“It doesn’t matter if you’ve been established for twenty years like us or one day. This is a terrible loss,” said the owner of La Alcapurria Quemá, Sonia Vizcarrondo. “Power outages affected us before, but not as much as now.”

LUMA has a long way to go if it wants to reach the goal of only 102 minutes for the System Average Interruption Duration Index (SAIDI) indicator, which averages the total duration of power outages per year. The NEPR established this performance goal by using electrical companies with similar characteristics to Puerto Rico’s electrical grid and good numbers as a reference. Hawaii, with an isolated transmission and distribution system like Puerto Rico, maintained a SAIDI of less than 152 minutes between 2015 and 2020.

The Bar by Which LUMA’s Performance is Measured

In 2019, NEPR asked PREPA to report its performance metrics every three months. These historical metrics help the regulator monitor and measure LUMA’s performance and that of the other company, Genera, which began the administration of the power plants in 2023. The NEPR states that it can issue fines for failing to comply with regulations or orders, according to Act 57 of May 27, 2014, which created the regulatory entity.

The Energy Bureau said it accepts it as good that the company is the one that gathers the numbers and submits them. “If something unusual is identified, the NEPR would conduct a more in-depth review and request additional information if necessary… Those regulated must be aware that lying is criminally prosecutable and subject, at a minimum, to monetary fines. It’s how other commissions operate, including the Federal Energy Regulatory Commission (FERC),” according to statements the Energy Bureau sent to the CPI.

When the CPI asked for definitions of the different complaint categories that the company reports under the “formal complaints” line in its metrics report, the Bureau said LUMA defines them and that this question should be directed to the company. This shows that the NEPR does not have a clear picture of the metrics LUMA reports. The company, meanwhile, avoided answering the question.

According to LUMA’s numbers, there has been an improvement in the System Average Interruption Frequency Index (SAIFI), a key metric that captures the average number of service interruptions per year. Its customers experience about eight annual blackouts, slightly less than the 11 in 2020, three years after Hurricane María, when PREPA ran the network. The goal set by the NEPR is only one annual interruption.

In a separate process, the NEPR approved minimum metrics that the consortium must meet to receive other financial incentives for its performance, as the contract establishes. These bonus metrics were approved on June 14, 2024, and will come into effect when LUMA’s 15-year contract starts, which is scheduled to begin after PREPA completes the financial restructuring process and the private consortium decides if it can run the system with the obligations imposed by the bankruptcy agreements. Meanwhile, LUMA is operating provisionally with a supplementary contract that expired in November 2022 and that Governor Pedro Pierluisi’s administration renewed without an expiration date.

The problem with the NEPR’s process for granting incentives to LUMA is that the regulatory entity did not include any type of penalty for non-compliance, something that community and environmental organizations requested. The lack of mechanisms to impose penalties on the company is pointed out in the joint resolutions approved in the Legislature since the operation and maintenance agreement for the electric grid went into effect in 2021.

“The Energy Bureau can impose penalties as a regulatory authority, but it waived its right to do so because it didn’t impose penalties on either the interim contract or the permanent contract,” explained attorney Ruth Santiago of the legal team that represented eight organizations in the case that establishes metrics for granting financial incentives.

“Wow! It seems to me a horrible lack of oversight by the Public-Private Partnerships Authority and the Energy Bureau, because no one has established the parameters to cancel the contract, so that it doesn’t hurt the people of Puerto Rico,” said Cathy Kunkel, an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), a global research group based in Ohio, who has deeply analyzed PREPA’s bankruptcy and privatization. “If no one defines what minimum performance is, I find it difficult in practice to cancel the contract.”

The metrics report also reflects an increase in the rate of days lost by its employees due to work-related injuries or medical conditions (Severity Rate, from U.S. Occupational Safety and Health Administration). “The increase in the injury severity rate reported by LUMA is unacceptable,” said the NEPR on June 10, 2024, when it ordered the company to show cause why it should not impose a sanction. Ten days later, LUMA revealed the apparent lack of oversight. LUMA  responded that the NEPR could not fine them because the regulator’s Performance-Based Incentive Regulations have not established the parameters for imposing penalties, so a reprimand would allegedly violate the due process of law to which the company is entitled. LUMA’s Severity Rate of 23 is lower than PREPA’s 31 in 2020. The consortium said in its response to the NEPR that its numbers have been systematically better than those of the public corporation in this area.

The AAPP Has Not Sent a Letter of Non-compliance to LUMA

The CPI asked the company if it believed it had breached the contract since it had not improved the blackout duration index after the third year. “LUMA has not breached its contract and implying in any way that it has done so is completely false,” said Mario Hurtado, LUMA’s chief regulatory officer, in a statement. He added he is working on projects to eliminate vegetation that affects transmission and distribution lines, which will allegedly reduce blackouts by 45% once the project is completed, and the installation of meters that monitor service in real-time and detect interruptions, reducing response time.

A CPI fact check found the claim that LUMA had launched the vegetation removal initiative to be misleading. This has not started in its entirety, and for almost a year, LUMA did not send the information required by the Federal Emergency Management Agency to launch the project’s evaluation and approval.

Rolando Emmanuelli Jiménez, the legal representative of the Electrical Industry and Irrigation Workers Union (UTIER, in Spanish), believes the government could activate at least one of the contract’s clauses to cancel it.

Section 14.1 of the contract, in section D, indicates that the consortium would be in breach if it does not carry out a material obligation. This refers to a significant failure in the execution of its obligations, which affects the essence of the contract and denies the government what it had the right to expect, Emmanuelli explained. He said power fluctuations, constant failures in the system’s operation, and massive blackouts are a result of the “company’s inability” to oversee the system efficiently.

“It’s a breach of the contract, because the contract has the exact purpose of exceeding, under the private operator, the metrics that PREPA had, besides improving the service, reliability, and cost of electrical energy,” said Emmanuelli. “And then, when you see that three years have gone by since the contract was signed, in which it’s evident that they haven’t achieved any improvement, but that basically the main metrics show a significant deterioration, it seems to me that there’s material non-compliance here.”

Subsection D calls for the government to put the failure in writing, establishing the non-compliance on record. According to the contract, the company would default if it did not correct the claim within 60 days. It could have 30 more days if it shows that it is trying to fix it “diligently and in good faith.”

This depends on the Public-Private Partnerships Authority, which oversees the contract, stepping up, pointing out the non-compliance, and writing the letter.

“The AAPP has not sent written notification to LUMA Energy related to an event of non-compliance with a material obligation, in accordance with Article 14 of the Operation and Maintenance contract,” the executive director of the AAPP, Fontanés, told the CPI in written statements.

“If the AAPP does nothing, as is apparently happening, since it hasn’t sent any letter, then that clause couldn’t be exercised at this time because it isn’t in the file. These statements show what we have denounced: the AAPP is not supervising the private operator,” Emmanuelli said.

Fontanés — along with the government’s deputy secretary of Energy Affairs, Francisco Berríos Portela, PREPA Executive Director Josué Colón, and Chief of Staff Noelia García Bardales — are participating in an investigation to determine if there was negligence during the blackouts last June, which affected 1 million citizens, around one-third of the island’s population.

Those events are coupled with service interruptions during the first week of June in the southern and central towns of Coamo, Aibonito, and Santa Isabel due to a transformer failure. The consortium tried to replace it with other equipment, transporting it by sea and land for $4 million, but the replacement failed due to an “internal problem,” according to LUMA.

“Once all the required information is available, an internal evaluation will be carried out by the components of the government of Puerto Rico [which include the AAPP] assigned to this investigation. It’s expected that the conclusion of the investigation will be completed in  September,” said the executive director of the AAPP.

Berríos Portela, who also chairs the PREPA Governing Board, did not respond to the CPI’s request for an interview. Fontanés was also unavailable for an interview but explained through written statements that “the contract and the Energy Bureau provide mechanisms to penalize LUMA if any investigation concludes that the company failed to meet its responsibilities. It isn’t responsible to talk about the cancellation of the contract without having the necessary grounds.”

But in a press conference on November 30, 2022, when he was going to announce the extension of LUMA’s supplementary contract, the Governor said something different from what Fontanés says now. Pierluisi claimed that the agreement could be canceled and that “the Energy Bureau has the power to establish metrics and impose fines on LUMA if its performance does not follow them or significantly affects the reliability of our electrical system.” The Governor pointed out that it was not appropriate to cancel the contract then because reconstruction projects would be delayed, and a new operator would have to be identified, which would be more expensive and affect the service even more. He further said that the estimated costs of canceling the contract would range between $300 million and $600 million.

Legislative Oversight Up in The Air

After LUMA’s supplementary contract was rolled out, multiple efforts were made in the Legislature controlled by the opposition to oversee it. None of the joint resolutions, which required the Governor’s approval and sought to protect different sectors, materialized.

Those resolutions sought to investigate the contract, amend it to include clauses ensuring adequate supervision, order its cancellation twice for non-compliance, monitor the use of performance metrics, and cancel incentives not included in the original contract. Half of the legislative initiatives, in fact, concern the cancellation of the contract. But none have achieved their goal.

Even before the consortium took control of the system, the Legislature sought to postpone the implementation of the contract because it believed it needed to be amended. The proposals included provisions for better oversight, to protect consumers, and to ensure proper treatment of PREPA employees during privatization. The Governor halted the resolution through an express veto on May 5, 2021. The legislature did not get the votes to override the Governor.

LUMA is experiencing a public opinion problem and ongoing criticism from the general population, the business sector, nonprofit organizations, several candidates for elected positions, mayors, and lawmakers.

Jenniffer González, gubernatorial candidate for the New Progressive Party (PNP, in Spanish), said during her primary campaign that the contract should be reviewed to ensure better accountability. Jesús Manuel Ortiz, running for governor for the Popular Democratic Party (PPD, in Spanish), announced he is setting up a team to document LUMA’s non-compliance. The alliance of the Citizen Victory Movement (MVC, in Spanish) and the Puerto Rican Independence Party (PIP, in Spanish) spoke out against the consortium and has said it will cancel the contract if they make it to La Fortaleza, the government house.

The company has consistently maintained that it continues to face “many challenges” due to the historic poor maintenance, operation, and design of the system it inherited from PREPA. The consortium had the chance to study the electrical system for at least a year before taking on the business.

“Unwanted” Scenario

“Right now, we’re trapped,” said Sergio Marxuach, director of public policy at the Center for a New Economy, a think tank. “We have reached a point where LUMA is dragging its feet. But canceling the contract is an extreme remedy.”

Marxuach said the cancellation would create an unwanted scenario for the government because of the cost of legal disputes. He said it would involve reverting the system to PREPA — which is now dismantled — and cannot assume responsibility, and the transition would take months. Privatization could also be granted to another company through a public-private partnership, which could take years.

“LUMA has proven unable to address the problems now. If you were a private operator, you would have to think twice about coming here, and it would depend on higher compensation. I don’t think there would be many people in line to want to operate it. The option of rescinding the contract must be thought carefully,” he said.